Covid crisis reinforces value of NEDs to boards

18th February 2021

The invaluable contribution of experienced Non-Executive Directors (NEDs) to Boards has never been more apparent than during the ongoing Covid pandemic, as executives face unprecedented challenges and pressures. Pascale Gara asked a panel of NEDs about their experience during the past year.

NEDs play an important role in achieving strong corporate governance, promoting the performance of the company and providing crucial independent judgment on issues faced by executive colleagues.

Roles vary according to company size, stage of development, degree of complexity of business/operating model and degree of ownership concentration. This requires different approaches, capabilities and skills from the NED.

In small entrepreneurial-led companies, Covid-19 has sometimes required NEDs to keep the CEO on track by ensuring key business decisions are not made alone, but are discussed so they can benefit from the NEDs’ wider experience of managing crises.

Some companies may still be in a position where the executive team is being built, and a crisis scenario can be an opportunity to develop a strong, cohesive top team that can face into the future. Experienced NEDs bring influencing skills which instil an evidence-based discipline to help the CEO identify and act on important areas of the business.

In large and mature firms with a long-standing business model, Covid-19 may require tough decisions such as scaling down the business without compromising the ability to return to previous growth. NEDs can play an important role instilling change into a business that is used to relative stability.

Crisis and change management, marketing, finance and risk management skills (including the ability to contribute a macro view) are fundamental NED attributes.

In large businesses with a variety of stakeholders, a crisis can expose fault lines. Influencing skills, political savviness and the experience to understand the shifting agendas while remaining effective, are critical NED capabilities.

Whilst the coronavirus has undoubtedly caused serious issues for many businesses, those companies that survive this crisis can use it as an opportunity to reflect on any weakness that it has exposed and the requirements of their Board for future success.

The need to make sure that stakeholders understand what’s happening has never been more important. Information flow is essential, as is giving the executive the comfort and confidence needed to know that they are supported. NEDs give an extra level of objectivity with the ability to step outside the business and return wearing a different hat.

Most companies have dealt with the complexities of going mobile with their employees largely online very well, although the lockdown has brought about a lack of interpersonal connection which has been missed.

Zoom and other VC tools can only go so far; bringing an extra level of formality that is not always desirable. Most NEDs seem to miss the interpersonal elements such as an arm around the shoulder or cup of coffee with the Chief Executive or another Board member, which is not quite so easy to do. Exposure to other layers of the business has also been missed.

Ian Starkey, Chair of the Audit and Risk Committees at DAC Beachcroft LLP and Bespoke Capital Acquisition Corp and Chair of the Audit Committee at Staffline Group, explained how he and fellow NEDs had supported Board executives during the last 12 months.

He said: “Often the NEDs are the best people to spot the stress and fatigue in the execs because they see them regularly enough to identify the changes but not so frequently as to miss them. It’s important NEDs are on the lookout for these signs and do something about it: be empathetic, supportive but firm in coaching the individual through it.

“All the businesses I’m involved with had to make choices that were different to the decisions we would have been making but for Covid. Acquisitions had to be postponed in one case. In another, we had to speed up the investments we had previously planned. A third brought forward the renewal of bank facilities.

“All had to mobilise their IT to enable staff to work from home. What management need from NEDs is recognition that priorities have changed, some strategies have to be scrapped, some accelerated and some delayed. They only have 24 hours in a day, so support them not just in prioritising what has to be done but also in what will have to wait.

“NEDs should get involved in helping management shape these critical early policies, then in monitoring how they are being implemented. Two of the boards I sit on moved to short, weekly meetings when the lockdown started to guide the business through this first phase.”

And despite the virtual nature of contact during lockdown, Ian said relationships with execs had actually been strengthened: “I would say I am closer to the execs than I was pre-pandemic. I probably see them more frequently and more one to one, though obviously we have lost the informal sessions around board meetings such as dinners.

“I can’t say this is ideal and we would all prefer to meet physically, but nonetheless the relationships are building and we have rapport. Like most things in the pandemic, you just have to get on with it!”

Former Agrii CEO David Downie is a Non-Executive Director and coach to the executive team at The VPS Group, and SID and Chair of the Remuneration Committee at NWF Group plc, joining both Boards in 2018.

He said: “Executive teams have been under a lot of pressure so being able to provide support, encouragement that they are doing the right things and occasionally offer some alternatives or call out a wrong choice early has been key.”

Caroline Bradley is an NED at Loughborough Building Society (Audit Committee, ALCO and RemCo) and newly appointed Chair of the Audit Committee at Al Rayan Bank.

She said: “As the year progressed, we realised that accessing services with technology would be more important in the future and that Covid was a game changer in the market. Even though profits were lower due to investment in homeworking and additional provisions, it was reassuring that when the NEDs discussed investment for future prosperity, the Board agreed on a programme of investment in people and technology to ensure that the Society came out of Covid stronger than at the start.”

Caroline Marsh, an NED at Lowell (Board Risk, Audit and Remuneration Committees) and an Executive Coach, said she hadn’t seen management looking to the NEDs for additional advice other than the normal reflections, observations and challenge and using them as a sounding board in the usual way.

But discussing her consultancy business, Caroline added: “I’ve definitely noticed that some of my executive coaching clients have been looking for more advice as they’ve been navigating the crisis, so they’ve been using me more as a mentor than a pure coach. I’ve obviously been delighted to support them in that way.”

Liz Blythe, Audit Committee Chair at Together and Peel Hunt and NED at Car Care Plan, said: “Initially frequent board reports were required because it was such a huge unknown with massive risks and moving so fast. I think the balance for NEDs was to keep informed in such a fast changing environment as well as recognising the need to not distract management. Ten months on, with new tiers and lockdowns, it has just become business as usual really.

“Management in all firms have coped incredibly well. I think it has identified some hidden talents across the firms, and actually seems to have boosted the confidence of the executives; having dealt with something so major and not only survived, but thrived!

“Two of my firms have used the opportunity of reduced volumes to push forward on transformation agendas. These firms have very manual processes, hence why some people have been needed in the office, and lower volumes for a period has allowed work to take place that everyone is normally too busy for.”

One of the key differences NED contacts have highlighted over the past ten months has been the move to remote onboarding for new roles. Feedback has been very positive on how smoothly the transition has been handled by the majority of companies recruiting non-executives during this period.

Caroline Marsh, who joined Lowell’s Board last August, said: “The online onboarding/induction process at Lowell worked brilliantly. It was a far more efficient way of getting to know the business and meeting the key members of the team than if we’d had to coordinate real life (as opposed to virtual) diaries and had to travel up and down the country.”

Caroline Bradley, who joined the Loughborough Building Society Board last March agreed, adding: “The online induction worked well with Zoom calls to introduce the senior team and get to know the business.”

The experience of moving to virtual board meetings also appears to have been a positive one, albeit inevitably not as good as face to face interaction.

Caroline Bradley added: “The virtual boards worked well…we quickly moved to weekly boards to monitor and manage capital, liquidity, and credit risk.”

Caroline Marsh agreed: “As far as board and committee meetings are concerned, we were fortunate to be able to do some of them face to face in October when we were out of lockdown. The rest have been online and in my opinion, have worked equally well.

“I suspect the fact the board was able to meet in person in October has helped with the effectiveness of our online working relationships though. There’s no doubt that from a relationship-building perspective, nothing beats sharing a real life coffee or meal with your colleagues.”

Moorad Choudhry, an NED at Loughborough Building Society (Board Risk and ALCO Committees) and Recognise Bank Limited (Chair of the Board ALCO committee and member of the Board Audit, Board Risk and Board Remuneration Committees), said: “I’ve found it has worked effectively since moving from in person to virtual meetings, but my personal view is that it can never be a completely like-for-like alternative, because the ‘softer’ side of what makes any board or committee meeting truly effective is more do-able when face to face.”

This view was echoed by David Downie, who said: “Mentoring has been harder by Zoom, it’s just not the same when you do not have the personal contact of face-to-face.”

For Joanne Hindle, Chair at Shepherds Friendly and a Non-Executive Director at Bank of London and Middle East, good governance going into the pandemic has prepared the boards of financial services providers for the difficult challenges it has raised.

She said: “Overall financial services companies have coped remarkably well with the move to remote working, thanks in no small part I think, to the regulators’ insistence on operational resilience.

“That said, though, it was a difficult year with more expected of all players, whether executive or non-executive. More frequent meetings, new MI developed to ensure we measured the key issues arising, and getting used to a new way of working.

“Our preparedness on risk also stood us in good stead…the good governance of previous years reaped rich rewards.”

Moorad Choudhry summed up with a call for increased diversity in the boardroom: “A diversified and experienced skill set is very important, especially in the current environment when we are still working through a market-wide stress event and firms, and therefore their boards, need to demonstrate adaptability and speed of response.

“A board that is able to adapt and respond to market events, particularly unforeseen ones, and remain nimble whilst doing so will always be an effective board.”

Pascale Gara heads the Chair/NED practice for HW Global Talent Partner. The coronavirus has created an appetite for skills so if you would like an informal discussion about your NED requirements or want to discuss NED opportunities, please contact her at [email protected] or call +44 (0) 781 258 2486.